Dollar Retreats as Fed Hike Bets Fading Amid Weaker Hiring Data
The US dollar has retreated as bets on a Federal Reserve interest rate hike in September have faded. The EUR/USD pair has regained its footing due to a combination of factors, including a glimmer of hope for de-escalation in the Middle East and weaker-than-expected US hiring data.
According to Dmitri Demidenko, a single remark from Donald Trump helped trigger a pullback in oil prices, which in turn pushed Treasury yields lower. This reduced the probability of a Fed rate hike in September from 70% to 62%. Disappointing economic data and neutral rhetoric from FOMC officials further fueled the US dollar's retreat.
New York Fed President John Williams sees no need to raise the federal funds rate in September, citing temporary factors such as tariffs and geopolitical tensions. With ADP's modest private-sector employment growth of just 38,000 jobs in August, this dovish rhetoric allowed bulls to push the EUR/USD pair higher.
However, the underlying problem has not gone away. The buildup of US military forces in the region suggests that the conflict in the Middle East may drag on. Europe's natural gas storage facilities are now only 65% full, the lowest level in 15 years, while prices have surged to their highest levels since early 2023.